Hi Anders,
Market failure may not be a particularly apposite term but:
1. It is not benchmarked to perfect competition. Fundamental 'failures' are externalites up to the extreme positive externality of pure public goods. The point is that markets of any sort will not emerge spontaneously in the presence of significant externalities. (Hence the 'need' for state framed carbon trading). Some, I know (Joseph Stiglitz comes to mind) have tried to extend the notion to include imperfect competition (not just the 'natural monopoly' problem that perhaps does deserve the name) and distributional issues. (Orthodoxy has long got over Bates outlandish arguments about the moral legitimacy of wages = value of marginal products.)
2. Why can not an abstract model, whose meaning can be made very precisely clear, not act as a benchmark, even though it cannot have actual existence?
3. Prices falling below costs of reproduction would clearly be a signal of over-investment, would they not?
4. Perfect competition is an abstraction, not a practical ideal. Imperfect competion theories emerged in part to explain the data on the STABILITY of prices in actuality as compared to the instability implied by perfect competition models. But, even if you are right, would not we welcome stable prices and technology?
5. But I agree with much of the rest of your rant!
michael
----- Original message -----
Sent: 2008/11/11 22:58:01
Subject: Re:Re: [OPE] Why Markets Fail
Hi all,
I think one of the concepts that we should get rid of is "market
failure" because the benchmark is "perfect competition" at totally
ideological construct. Markets does not fail, they have different
dynamics and different consequences. Since *nobody* has shown
anything like the stability of a perfect market - any conclusion
about over/under investment in R&D, knowledge, fixed capital goods -
you name it are completely and utterly useless - since the benchmark
cannot exist.
That one might argue on other grounds that there is too little/much
investment is of course correct. Too much investment in PR, in arms,
in drug industry... to little in green technology, social housing,
education etc. etc.
If one is giving a speech these days one have to stress:
a) Markets are unstable and cannot be left alone. Without
*democratic* regulation, i.e. social, political, normative - markets
create negative social consequences and are obviously inferior to a
"reasonable" way of doing things.
b) Perfect competition creates perfect monopoly!
c) Perfect competition = perfect stagnation (prices and technology
does not change = a stagnant hell)
d) Strong unions is one of the best ways of keeping business
"decent". That is the "Darwinian" hand that weeds out obscene
bonuses, fraud, cheating on product quality etc. etc. Strong unions
in keeping pressure on a social democratic party in power is the best
variety of capitalism, and only varieties of capitalism are on the
real political agenda - regrettably.
e) International regulation of capital is necessary, tax exchanges on
the stock markets (London has a small tax - increase it tenfold!)
Only one trading day on the stock exchange per month! Continuos
trading has nothing to do with changes in underlying long-term
productive realities! No tax heavens - send the marines to topple the
"financial" terrorist regimes.
f) Market failure is a ridiculous concept! One can talk about systems
failure, the dire consequences of *not* properly regulating
fundamentally *unstable* markets etc. but not market failure!
... and so on ;-)
Shooting from the hip...
Anders
At 18:43 11.11.2008, you wrote:
>Markets fail for many reasons. With all the attention to the current
>financial crisis, the time has come to look at another part of
>market failure -- the reluctance to invest in long-lived plant and
>equipment. I'm not merely thinking about the deindustrialization of
>the US economy, but a more general reluctance.
>
>The commitment of funds for fixed capital entails taking a risk. In
>the words of John Hicks, one of the earliest economists to win a
>so-called Nobel Prize, pointed to the obvious problem: "an
>entrepreneur by investing in fixed capital gives hostages to the
>future" (Hicks 1932, p. 183). Unfortunately, neither Hicks nor
>virtually any other economist has explored this fear of investment.
>
>The most popular response to this reluctance to invest came from a
>very conservative Austrian economist, who once served as a socialist
>minister of finance, before landing at Harvard. Joseph Schumpeter
>was indeed one of the giants of 20th century economics. Here his
>reputation to his personal brilliance, as well as a willingness to
>learn from Karl Marx.
>
>I have attached the rest of the piece as a pdf at
>
>http://michaelperelman.wordpress.com/2008/11/11/why-markets-fail/
>
>It was written to help me focus my thoughts for my talk in San
>Francisco tomorrow. Any comments will be appreciated.
>
>--
>
>Michael Perelman
>Economics Department
>California State University
>michael at ecst.csuchico.edu
>Chico, CA 95929
>530-898-5321
>fax 530-898-5901
>www.michaelperelman.wordpress.com
>_______________________________________________
>ope mailing list
>ope@lists.csuchico.edu
>https://lists.csuchico.edu/mailman/listinfo/ope
>
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Received on Wed Nov 12 13:41:42 2008